Will revised ethanol price bring relief to the sugar industry and save sugarcane farmers?
Although the government had made it mandatory for oil companies to blend 5% ethanol with petrol, it was not fully implemented due to the high prices of ethanol
The uncertain conditions in the Sugar Industry received an unexpected boost when the Cabinet Committee on Economic Affairs (CCEA ) approved and announced the upwardly revised price of ethanol to Rs49.50 per litre (or Rs48.50), depending upon the distance between the sugar mill and the oil marketing companies depots. Last year, around this time, it was Rs29 and this had moved up to Rs47.50 in October this year.
Although the government had made it mandatory for oil companies to blend 5% ethanol with petrol, it was not fully implemented due to the price factor, as sugar mills reportedly found it more profitable to supply ethanol to distilleries. The initial plan was to progressively increase this blending rate from 5% to 10%, so as to save on the high cost of imported oil, but in actual practice, the blending is reported to be about 1.45% only.
The demand for ethanol, for which Oil Marketing Companies (OMCs) had floated tenders earlier, amounted to 156 crore litres and got a lukewarm response from sugar mills that bid for only 62 crore litres. Even this quantity was not fully "accepted" and OMCs finalised contracts for about 35.5 crore litres, slated for delivery from October this year.
Based on a 5% blending of ethanol, the savings in foreign exchange would have been at least Rs5,000 crore a year.
The target of reaching 10% ethanol blending is still just a pipe-dream!
In the meantime, OMCs have been hoping that as a result of the fall in oil prices internationally, they could renegotiate with sugar mills for a reduction in the price of ethanol. The oil price had steeply fallen from $114 in July to a shade above $60 per barrel on the London ICE, chances are that it may fall further. OPEC does not expect to reduce their production and so far have not indicated their plans for the next year.
Now that the government has fixed the ethanol price, it is likely to benefit the farmer. Sugar mills are not likely to be able to renegotiate the ethanol price with OMCs. In any case, their own sugar stocks are piling up and they have a mountain of debt to settle including arrears to farmers and other bank dues. On the top of these, non-moving stocks of sugar are also hurting them financially, in terms of holding costs.
According to Indian Sugar Mills Association, the sugar production till November end (2014-15 season) has been estimated at 17.81 lakh tonnes. In the meantime, the new government of Maharashtra has recently set up the Sugarcane Price Control Board but it is yet to take a decision on cane pricing for this season, even though cane crushing has started and the first instalment payment to sugar cane farmers will come due soon. Ex-factory price of sugar is coming down and millers are still hoping that the government would look into their plight by extending subsidy for sugar exports.
Suggestions have also been made, that it may be worthwhile for the government to create a buffer stock of sugar of about 4 million tonnes, the quantum needed for Public Distribution System (PDS) by States for 2 years, this will remove the surplus stocks from mills and possibly bring stability in price levels in the market. But who will be given the responsibility of warehousing and storing the stocks? FCI (Food Corporation of India) are themselves in a mess by holding foodgrains, and they do not have additional specialised storing space for sugar.
Whether it is Maharashtra, UP, Karnataka or even Tamil Nadu, the sugar industry is in trouble due to various causes that are too well known for elucidation. Each State has its own logistical and local problems in dealing with the industry, particularly when dual pricing systems are in place. This issue has to be settled once and for all; it is worthwhile for the government to re-examine the recommendations made by the Rangarajan committee to revive the "linkage formula," so that these issues do not crop up year after year. Export subsidy has been sought time and again, and this also needs to be thoroughly investigated in relation to the world market conditions, if any assistance is needed, it should be fixed for the entire duration with a firm export target, rather than doing it every couple of months as it currently is done.
has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)